The revenue department of the Modi government deserves a big hand for persuading people to declare a massive Rs65,000 crore of undisclosed income under its Income Declaration Scheme (IDS). But what should gladden the hearts of honest taxpayers is the quality of disclosure. IDS has not been about providing yet another amnesty to habitual tax-evaders; the focus seems to have been on nailing those who skilfully remained under the tax radar by dealing only in cash, although their daily revenues were in lakhs of rupees. In fact, there is a parallel effort to ensure that regular taxpayers are not needlessly harassed.
Both efforts require a lot more work, but as Shah Rukh Khan would say, ‘Picture abhi aur baki hai mere dost’. Remember, prime minister Narendra Modi has asserted that “No one should blame me if I take tough decisions after the 30th (of September).” We expect this to kick into action soon. Assuming that the government continues with the good work that went into ‘persuading’ thousands of new people to disclose taxable income, this could be a turning point in tax compliance in India.
It is now believed that the final disclosure figures may surpass Rs70,000 crore; and, yet, it wasn’t until the last few days that people finally got the message and realised that this ‘amnesty’ is different and rushed to catch the 30th September deadline. With a tax rate of 45% to get immunity from prosecution under the Income-tax Act, Wealth Tax Act and Benami Transactions (Prohibition) Act, the government will net close to Rs35,000 crore as tax from the declaration.
In 1997, an outrageous Voluntary Disclosure of Income Scheme (VDIS) managed to get declaration of around Rs33,000 crore after providing a massive bonanza to tax-evaders in assessment of ‘inherited’ jewellery, if certified by shady chartered accountants. The VDIS did nothing to enlarge the tax base, as it seems to have done this time.
How did all this come about? The government did all the usual stuff—like launching a massive advertising campaign urging people to take advantage of IDS. Every single taxpayer received text messages. But the more significant persuasion was in the form of letters to 900,000 individual tax-evaders, based on information collated through annual information reports (AIRs) and other sources, to signal that the taxman was watching. A week before 30th September, hundreds of doctors, business persons, beauty parlours, etc, were contacted and told that the tax department has information on them and action would be initiated if they did not avail the IDS amnesty window.
The tipping point, however, was the broad spectrum of raids, searches and seizures that did not spare the rich, the powerful political class or the millionaire street-side hawkers and vendors who have evaded taxes all these years. A quick net search shows that action began in early 2016, but nobody guessed how it would all come together at the end of September. Consider these events:
- In January, the income-tax (I-T) department raided Apollo Hospitals, a chain of high-end hospitals.
- February 2016 saw the first raids/searches on street-side dosa vendors, paanwallahs and juice vendors operating in the posh Banjara Hills area of Hyderabad.
- In March, action was taken by the anti-corruption bureau and enforcement directorate against the Chaggan Bhujbal, the heavyweight Nationalist Congress Party leader. He was later arrested. Over time, leading construction companies, reputed to be close to him, were raided by the tax department.
- In April 2016, traders of pulses were raided across India. According to The Hindustan Times, tax evasion of around Rs700 crore, through speculation and hoarding, was detected. There were also tax raids and seizures on beleaguered god-man Aasaram Bapu’s ashram. The god-man remains in jail. In the same month, construction companies, known to be close to powerful politicians, were raided.
- At the end of June, tax officials searched the offices and homes of senior employees of the Delhi International Airport (P) Limited (DIAL), which is part of the powerful GMR group, on tax-evasion charges.
- In July, raids were conducted all over Maharashtra on the large education institutions and family of former governor of Tripura DY Patil. The I-T also raided several large and politically powerful contractors and listed entities, such as Ashok Buildcon and Indiabulls, signalling that big industry would not be spared either.
- On 30th August, PTI reported a 300% rise in raids, searches and surveys in 2016 over those in the previous year. This led to the seizure of over Rs330 crore in cash, jewellery and other undisclosed assets. Action was further stepped up in August and September.
- On 18th September, The Hindu reported I-T raids on various properties and several businesses of a former minister in Tamil Nadu leading to the discovery of over Rs100 crore of tax-evasion.
- On 19th September the Times News Network reported searches on major builders and educational institutions in Raipur and seizure of documents and assets.
- On 20th September, The Indian Express reported that the I-T raided/ surveyed over 150 jewellers and bullion traders across India and, in almost every case, directed them to declare undisclosed income under the IDS. The action is significant because jewellers, who are seen as a important voter base of the Bharatiya Janata Party (BJP), have been protesting against various efforts by the government to force more transparency in their dealings (quoting PAN for transactions above Rs 2 lakh) and have even gone on a nationwide strike to demand withdrawal of 1% excise duty on gold and diamond jewellery.
- On 22nd September, it was the turn of 200-odd roadside eateries in Mumbai to be raided. These included famous vada-pav and dosa vendors, fruit juice and jalebi-sellers. By 1st October, The Economic Times reported that they had collectively declared Rs50 crore in cash and properties under the IDS, after being told to opt for amnesty or face action after the deadline expired.
These reports make it clear that I-T action was planned well in advance and covered a broad spectrum of persons who ought to be paying tax. Nearly 28% of the declarants are understood to be from rural and semi-urban areas. Importantly, tax officials themselves were under scrutiny. The Central Board of Direct Taxes (CBDT) has also asked all tax offices to display the numbers of Central Bureau of Investigation (CBI) to be reached, if tax officials demand a bribe. The CBI has been hyperactive against corrupt government officials and tax officials in the past few months, although this effort has received a blow after the tragic BK Bansal case, where his entire family committed suicide after the senior bureaucrat was arrested.
While a large chunk of income declarations happened due to a fear of prosecution, many evaders have missed the bus because of wrong advice from their legal experts. A report in The Economic Times quoted lawyers (without naming them) who had discouraged clients from making declarations for fear of harassment. Some made the excuse that four months was too short a time to sell assets and raise funds to pay the taxes. One expects that they will have to face the music soon.
As for new entrants into the taxpayers’ list, like roadside food-vendors, they have been bribing the police, municipal officials and small-time politicians, to ply their trade. Turning into legitimate taxpayers will, hopefully, encourage them to move away from illegally-occupied and hafta-paid public spaces.
In a country where only 5.5% of the people, who earn, pay tax and only 15.5% of the net national income is reported to the tax authorities, this is a good beginning and a boost to honest taxpayers who have been harassed and made to feel foolish for far too many decades after Independence.
is definitely ushering a new phase in terms of Tax Compliance in our country.
Every day cash of higher denominations (Rs.500 & Rs.1000 denominations) are used to settle unaccounted High value transactions , which are out of the Income Tax Net and Banking System, thus evading Tax and avoiding legal scrutiny. Apart from above mentioned reasons, these transactions lead to increasing Crime,Terrorism, artificially raise prices making Citizen’s lives miserable. Everyday huge amount of cash is moved from all Bank’s currency chest to bank branches and also filling ATM’s across the country. Reports of gangs attacking the vehicles carrying huge cash ( in crores), vehicle personnel running away with cash, Thieves attacking ATM users (like Bangalore 19.11.2013 assailant still at large), Thieves carrying away ATM units after fatally attacking ATM security guards are a recurrent phenomenon. Counterfeit notes of these higher denominations also cause huge financial loss to our country and our gullible citizens. The reason for such cases is due to the reward of cheating the system as the higher denominations involve huge undue gains. The rise of electronic fund transfer negates the use of such high risk transactions in physical cash. Request the FM to ban these higher denominations of Rs.500 & Rs.1000 notes , of course in a planned and phase wise schedule (say within 6 months to 9 months), so that all high value transactions are done through proper banking channels, which in turn will help our economy and we walk the first step towards corruption free nation
The trouble with this analysis is that it is very simplistic. The Indian economy now is significantly bigger than what it was in 1997-1998. The nominal GDP (a measure of the size of the economy) was 9.4 times bigger in 2015-2016 in comparison to 1997-1998. But, the total amount black money declared is only 2 times more (Rs 65,250 crore now in comparison to Rs 33,000 crore then). The tax collected is likely to be three times bigger.
Shouldn't these basic factors be taken into account before declaring that tax collections are likely to be three times bigger? Also, the total number of declarants of black money in 2016 are 64,275. As per this Outlook story, the total number of declarants of black money in 1997 were 4.7 lakh.
The number of declarants in 2016 are way fewer than 1997, primarily because the black money declarations are now being taxed at 45 per cent against 30 per cent earlier. If the tax on the black money had been fixed at 30 per cent, the total number of declarants would have been more.